Tehran, Iran - The United States' excessive spending in the Mideast and fiscal recklessness has led to a massive debt. This worries Asian countries that supply the U.S. goods. Like Bashir says, China might escape the consequences of this shifting U.S. demand for goods, but the impact on more fragile economies in the region will be significant.
Asian markets have been paying a premium price for oil ever since the attack on Iraq which began a period of uncertainty. Meanwhile, the terminology of regime change, pre-emptive nuclear strikes, "coalition of the willing" and stealth WMD have overtaken diplomacy and agreements on global trade, reduction of tariffs and WTO's Doha talks. Emerging markets have been sorted out as "either with us or with the terrorists".
Meanwhile, the U.S. as the largest economy and consumer of Asian products in the world threw aside all fiscal discipline. Its government's debt grew to about seven times the amount when Ronald Reagan took office. Cheap Asian imports and unrealistic minimum wages were used as a lever against real inflation to keep statistics and the overall cost of consumption at an artificially low level. A de facto devaluation of American debt load (and currency) is the practical net result. However, an unavoidable stagflation has ensued and America may well be on the path to what Japan experienced in 1990s.
A slower growth rate and uncertainty of sales can be alarming for those who supply good to the stagflationary economy. Yet the American economic slowdown will translate into different results for China and India.
China is most exposed to changes in American consumption, but internal growth and rising demand from Russia and the Middle East could well replace American customers. India is faced with a different set of challenges. It requires massive investments in infrastructure, especially for energy, which more than 50% of Indians do not have. Large undertakings in energy infrastructure will require very large export credit guarantees from the American Government slong with money. Alas, the Enron export credit case is a reminder of practical difficulties ahead.
If instability in Israel and Lebanon escalates into a more serious conflict in the region, it might well require higher spending by Uncle Sam. Moreover, spending in Iraq and aid from the U.S. to Israel is likely to increase. Increased American borrowing, in turn, will cause significant changes in financial markets. Less money will then be available for developing markets. With oil prices potentially at $100 a barrel, the combined impact on more fragile and indebted economies such as Malaysia, Thailand and the Philippines will be considerable.
Please e-mail PostGlobal if you'd like to receive an email notification when PostGlobal sends out a new question.
Email Me | Del.icio.us | Digg | Facebook
